IRDAI has issued an exposure draft on payment of commission and reward to insurance agents in which it has hiked the first year commission (upfront commission) in pure risk policies like term insurance plans having premium paying term of over 12 years to 50% of annual premium.
Also, the first year commission in term policies having premium paying terms between 5 to 11 years has increased to 40% of annual premium. Currently, the first year commission payouts under such policies ranges between of 20%-35% of annual premium.
Similarly, trail commission or commission on renewal of policies has been increased from 5% to 10% of annual premium under term insurance policies. Under group term plans, insurers can pay up to 10% of annual premium not exceeding Rs.10 lakh as upfront as well as trail commission.
Traditional plans
Commission payouts in policies other than pure risk (traditional policies) like whole life, endowment and money back will remain unchanged. While the first year commission of traditional policies having over 12 years of premium payment term will continue to be 35% of annual premium, insurers can pay up to 30% of annual premium on policies having premium paying term of less than 12 years. Currently, insurers who have completed 10 years of operations can pay first year commission of up to 35% while others can pay up to 40% of annual premium.
The insurance regulator has proposed to keep the trail commission on such policies at 7.5% from second to fifth year and 5% thereafter.
Under group savings variable policies, insurance companies can pay the first year commission of 30% of annual premium on policies with over 12 years of premium paying term and 25% of annual premium on others.
Annuity
IRDAI has proposed to keep the first year commission under annuity plans or pension plans at 7.5% of annual premium and 2% of annual premium in the subsequent years.
Single premium policies
All single premium policy will continue to pay 2% of premium payment. However, under single premium policies of term plans, insurers can pay up to 10% as commission.
IRDAI said that these proposals are expected to come into effect from April 1, 2016. Also, IRDAI said that insurance companies will have to take approval of the board before fixing commission structure of agents.
Agents can submit their feedback on these proposal to IRDAI at commission@irda.gov.in or randip@irda.gov.in.
A few days back, through a draft circular, IRDAI has proposed to put a cap on commission structure of life insurance agents by keeping such payouts within the expense ratio. However, the regulator has said that it may allow insurers to pay higher commissions to their distributors by hiking expense ratio based on certain conditions. Currently, insurers can deduct up to 90% of premium in expenses in the first year and up to 15% of the renewal premium. For insurance companies that have been operational for lesser than 10 years, the limit is higher.